- The Federal Reserve continued its pause on interest rate hikes on Wednesday.
- It's unclear when it will begin cutting interest rates in 2024.
The nation's central bank started off the new year as it closed out the last: no change to interest rates.
On Wednesday, the Federal Open Market Committee announced it would continue its pause on interest rate increases, falling in line with economists' and market watchers' predictions.
As the Federal Reserve continues to aim for its 2% inflation target, the economy is showing signs of improvement — job growth surpassed economists' forecasts in December with 216,000 payrolls added, and the Consumer Price Index, which measures inflation, rose 3.4% in the same month, much lower than its troubling spike in 2022.
The Bureau of Labor Statistics also released new data on the Employment Cost Index for the final quarter of 2023, which shows how labor costs are changing in relation to the economy. The index increased slightly to 0.9%, which Economist at Indeed Hiring Lab Cory Stahle said in a statement "suggests that employers are feeling less pressure to raise pay to attract and retain workers as wage growth slowed further in the fourth quarter."
"Policymakers at the Federal Reserve are likely to be encouraged by this data as it indicates steady progress in their inflationary fight," Stahle said.
Despite the economic progress the US has made since the pandemic began, Fed Chair Jerome Powell cautioned in December that the fight isn't over yet, and he doesn't want to risk easing off the fight against inflation too soon.
"We still have a ways to go," Powell said at a December press conference. "No one is declaring victory, that would be premature, and we can't be guaranteed of this progress. So we're moving carefully in making that assessment of whether we need to do more or not."
Still, the FOMC's December Summary of Economic Projections penciled in three interest rate cuts for 2024, suggesting the central bank is anticipating relief at some point this year. While those predictions could change based on economic data, it's fairly safe for Americans to anticipate cuts as the year progresses.
As to how soon a rate cut might come, it's still unclear. The Fed will likely use Friday's jobs report to help determine what its next move in March should be. Powell also said on Wednesday that "I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that, but that's to be seen."
But some Democratic lawmakers are hopeful it'll be a cut to help Americans manage high housing costs.
"Interest rates are still too high for many American families, who already cannot afford to pay rent or buy their first homes," a group of Democrats, led by Sen. Elizabeth Warren, wrote in a Monday letter to Powell. "As the Fed weighs its next steps in the new year, we urge you to consider the effects of your interest rate decisions on the housing market and to reverse the troubling rate hikes that have put affordable housing out of reach for too many."
Treasury Secretary Janet Yellen recently acknowledged to ABC News that rents and food costs "are maybe 20% higher than they were before the pandemic. And I think that's something that influences sentiment," she said. But overall, she's optimistic about 2024 and thinks it's "going to be a very good economic year."
"Consumers and households feel confident enough about their own personal financial situation and about the economic outlook to be spending in a way that's creating jobs, creating growth and is providing them with the income to go on doing that," Yellen said. "So, I see no reason why that can't continue."